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Friedman’s Legacy

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Friedman’s Legacy

Though I never met him, Milton Friedman, who has died aged 94, was one of the earliest influences on my political development. In the late 1970s, I was a teenager in Britain. I had seen trade unions bring down a Conservative government and saw how they were in the process of bringing down a Labour one, all in the name of higher wages. Inflation was rampant. I looked at my family’s bank pass books of a decade earlier and marveled at how anyone could live on so little money. Something was clearly wrong, and so I started watching The Money Programme on BBC2 on a Sunday evening for illumination. During one such broadcast, an actor sang a little ditty that has stayed with me to this day — “It’ll be tough, but we’ll get by/With tight control of the money supply.”The broadcast was about monetarism; more specifically, Friedman’s central insight that the Keynesian notion that there was a trade-off between inflation and unemployment was simply wrong. Instead, it was monetary policy that drove inflation; too much money chasing too few goods led to higher prices. Inflation, in turn, destroyed jobs. Following the election of Margaret Thatcher as leader of the Conservative party, she and her allies such as Sir Keith Joseph realized that a healthy dose of Friedmanite policy had to be administered to the ailing economy. In 1979, the pre-election document “The Right Approach to the Economy” declared that a Conservative government would stop messing about trying to control the economy, strictly control the money supply, and institute supply-side reforms such as reduction of government spending and lower taxation.Of course, things didn’t work out quite as easily as that. When things started to get tough, the less trenchant members of Mrs. Thatcher’s government — described by the Libertarian Alliance’s John Burton as crypto-collectivists and a “cringing rabble” — tried to get her to change course. They called for ‘U-turns,’ which led to one of Mrs Thatcher’s most famous remarks: “You turn if you want to. The lady’s not for turning.” Yet in some ways, her government did turn. Sir Keith Joseph himself presided over attempts to bail out failed industries like British Leyland. This led to Milton Friedman’s remarks in 1983, referring to policy changes: “It’s gone down, it’s gone up, it’s gone down, it’s gone up . . . you (the British) had a much more severe recession than would have been necessary.”The break with strict monetarism and the recession led to Friedman’s name becoming reviled in the U.K. At a time when satirical magazine Private Eye portrayed Mrs. Thatcher successively as a Hitler figure and then the evil alien Maggon, “Supreme Leader of the Universe,” Friedman was even less well-liked. That characterization continues to this day, with his name often linked to General Pinochet as well as Margaret Thatcher. As John O’Sullivan wrote during the Pinochet extradition fiasco, journalists “constructed an apostolic succession of world monetarism, according to which Milton Friedman had invented monetarism (“Let there be darkness!”) and taught it to Pinochet; then the General had imposed a monetarist experiment on Chile by torture and the secret police; and, finally, Lady Thatcher, having carefully studied his policy, had ‘emulated’ it in Britain. So monetarism is fascism disguised as accountancy. QED.”Yet Friedman’s economic legacy to Britain survived the character assassination. It became recognized that inflation was public-enemy number one. As Mrs. Thatcher herself wrote in The Downing Street Years, “The only effective way to control inflation is by using interest rates to control the money supply.” The rejection of this belief led John Major into the European Exchange Rate Mechanism, which in turn led to interest rates being too high, a run on the pound and the loss of the Conservative party’s reputation for economic competence, something it has not yet truly regained. Gordon Brown’s greatest achievement as steward of Britain’s economy under Tony Blair was to make it impossible for politicians to stray this way again: he gave control of interest rates to the Monetary Policy Committee of the Bank of England. In doing so, Brown signaled Friedman’s victory over Keynes in British politics. As Sir Alan Walters wrote in his magisterial entry on Friedman in The New Palgrave Dictionary of Economics, “The success of his advocacy has been enormous, and opinion in Western countries, even among the clerisy, has moved decisively in its preference for those economic freedoms that he so eloquently advocated.”Others will write about his other enormous contributions to freedom around the world — his leading role in the abolition of the draft, his tireless work in favor of school choice to name but two — and we can but hope others will continue his work. My boss, Fred Smith, on hearing of his death said, “[W]e can continue the struggle, do our part to leave the world a bit better, striving always to advance freedom. And, in doing so, we will benefit greatly from the intellectual ammunition and the personal example he leaves us. For that and much more, we should all mourn and honor this great man.”To me, Milton Friedman will remain the intellectual giant whose insights saved Britain from terminal decline. A few years he forecast that the euro — the latest grand experiment of European collectivists and technocrats — will last 15 years at most. I think after raising a glass to this great man’s memory, I shall put a quid or two on that coming true, humming that little ditty as I do so.<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />